Continued Controversy About Frac Fluids

The E&P industry is continuing to face public criticism of its use of fresh groundwater in fracing wells and its failure to disclose the chemicals added to frac water.

On February 5, the Investor Environmental Health Network (IEHN) issued a press release announcing that shareholders have filed resolutions with Cabot O&G, Chevron, Exxon Mobil, EOG Resources, ONEOK, Pioneer Natural Resources, Spectra Energy, Range Resources and Ulta Petroleum challenging the companies “to quantifiably measure and reduce environmental and societal impacts” of their exploration activities. The resolutions focus on water issues, asking the companies to disclose the amount and sources of water used, how they track and measure naturally occurring radioactive materials (NORM) in frac water, whether and to what extent the companies use closed-loop systems in handling frac water, and what efforts are being made to reduce the amount of fresh water used. Shareholder proposals were filed by Calver Investments, Green Century Capital Management, the New York City Office of the Comptroller, the New York State Common Retirement Fund, the Sisters of St. Francis of Philadelphia, and Trillium Asset Management. IEHN and the Interfaith Center on Corporate Responsibility published a report in 2011, “Extracting the Facts: an investor guide to disclosing risks from hydraulic fracturing,” intended to list and encourage best risk management practices by E&P companies, including reducing and disclosing all toxic chemicals, minimizing fresh water use by substituting non-potable sources, and using closed-loop systems to store waste waters.

Last week, New York Comptroller Thomas DiNapoly announced that the state’s pension fund had reached an agreement with Cabot O&G to disclose its practices for minimizing the use of toxic chemicals in frac fluids. DiNapoli withdrew his shareholder proposal submitted for Cabot’s upcoming proxy statement. DeNapoli has negotiated similar agreements with Hess, Range Resources and SM Energy.

Halliburton, which provides frac fluids for the industry, has developed a “green” frac fluid called CleanStim that uses only food-industry additives. Halliburton production manager Nicholas Gardiner said that Halliburton has developed a chemistry-scoring system for fracfluids, with lower scores being better. CleanStim has a zero score, he said, but is “relatively more expensive” than many traditional fracking fluids. Terry Engelder, a geologist at Penn State, said: “Eventually industry would like to end up with a mix of just water, sand, and food-grade additives. Companies are learning to deal with fewer and fewer additives.”

The Texas House Energy Resources Committee held a hearing last week about fracing and water use. Industry spokesmen testified that they are using more brackish water and reusing flowback frac water; recycling water; and covering their retention ponds that store fresh water to limit evaporation. A spokesman for Fountain Quail Water Management said that 900 million gallons of flowback water have been recycled back to freswater in the Barnett Shale over the past nine years. He also announced formation of the Texas Water Recycling Association. A Devon Energy spokesman saidd that Devon had recycled about 700 million gallons of frac water since 2005. He said it costs 50 to 75% more than disposing of the water by injection. NBC News reported on a new water desalination technology that can clean up brackish water so that it can be used in fracing.

Meanwhile, Texas’ law on disclosure of chemicals in frac fluds has come under criticism because of its trade-secret “loophole.” A Bloomberg report said a sample of frac fluid disclosures from 370 wells reported in August 2012 showed that Baker Hughes averaged 9.1 non-disclosed ingredients per well, Halliburton averaged 9.3, and Superior Well Services averaged 32.5. Lon Burnam, the Democratic state legislator who co-authored the law, said that “this disclosure bill has a hole big enough to drive a truck through.”

On another topic: a final good-bye to Aubrey McClendon, who has resigned from Chesapeake, the company he founded. He receives a nice parting gift of $45.2 million over the next four years and $33.5 million in restricted stock. He was previously removed as Chairman of the Board because of heavy criticism of alleged conflicts of interest and the company’s poor market performance. It will be interesting to see how Chesapeake survives without him. While much of the criticism of his tenure is undoubtedly deserved, his huge contribution to the natural gas boom of the last ten years should not be forgotten.

This Blog/Web Site is made available for educational purposes only as well as to give general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and the publisher. The Blog/Web Site should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.